Economist: B50 mandate may increase operational costs

Institute for Development of Economics and Finance (Indef) Executive Director Esther Sri Astuti has stated there is potential for increased operational costs with the implementation of the mandatory 50 percent biodiesel blend (B50) fuel policy. Esther explained that these costs are necessary for vehicle engine maintenance, especially for older diesel engines not designed to use high-concentration vegetable oil blends. “In heavy sectors such as mining, the use of fuel with high vegetable fat content risks increasing engine maintenance costs by up to 10 percent,” Esther said when contacted in Jakarta on Monday. She also highlighted the hygroscopic nature of vegetable-based fuels, which easily absorb water, thus requiring completely airtight storage to prevent damage or quality degradation. Nevertheless, she stated that the B50 mandate also presents several advantages, including increasing the added value of palm oil commodities and strengthening national energy independence. Esther also said the policy allows the government to massively stop diesel imports. Minister of Energy and Mineral Resources Bahlil Lahadalia has said that utilising 50 percent biodiesel is projected to reduce fossil fuel imports by up to 4 million kilolitres per year and save the country foreign exchange of up to Rp157.28 trillion. The increase in biofuel consumption as a result of the mandatory policy is also projected to absorb up to 2.21 million workers. With the growing need for palm oil as a raw material for B50 production, Esther urged strengthening accountability in the management of the palm oil ecosystem. The government, through the Ministry of Finance, has tasked the Palm Oil Plantation Fund Management Agency (BPDPKS) with collecting, managing, and distributing funds from palm oil export levies for industry development and farmer welfare, including through the People’s Palm Oil Replanting (PSR) programme and palm oil product research and development. “Support for palm oil farmers and accountable fund distribution must be continuously monitored to maintain the sustainability of the palm oil industry ecosystem from upstream to downstream,” she said.